VW's $7 Billion Screwup: A Lesson In How To Destroy A Brand

Autos
I write about industrial innovation and the global auto industry

Volkswagen AG said today that as many as 11 million diesel-powered vehicles world-wide could be affected by software allegedly used to cheat U.S. emissions tests and said it would set aside €6.5 billion ($7.27 billion) in the third quarter to "cover the necessary service measures and other efforts to win back the trust of our customers."

The reaction in Europe was devastating, with VW shares plunging more than 20 percent in mid-day trading, after falling 19 percent on Monday. The German press was aghast, with one paper, Bundesdeutsche Zeitung, saying: "'Made in Germany’ in the gutter".

In a bit of unfortunate timing, Volkswagen's U.S. boss, Michael Horn, had the task of unveiling a new Passat at a press conference in New York on Monday. He didn't mince words: "Our company was dishonest with the EPA and the California Air Resources Board, and with all of you, and in my German words, we have totally screwed up."

The Volkswagen scandal exploded Friday, when the U.S. Environmental Protection Agency accused Volkswagen of installing software on nearly 500,000 diesel cars that made them appear to run cleaner in testing than they do in real-world conditions.

The U.S. Justice Department has launched a criminal investigation and a Congressional committee is planning to hold a hearing to determine how VW managed to cheat regulators. Under the U.S. Clean Air Act, the company could face as much as $18 billion in fines.

In a statement today, VW said the relevant engine-management software is also installed in other diesel-powered vehicles in the Volkswagen group but, "For the majority of these engines the software does not have any effect." Volkswagen owns 11 brands, including
Porsche,
Audi, and Skoda.

"Discrepancies relate to vehicles with Type EA 189 engines, involving some eleven million vehicles worldwide," the company said. "A noticeable deviation between bench test results and actual road use was established solely for this type of engine. Volkswagen is working intensely to eliminate these deviations through technical measures."

I'm the Detroit bureau chief for Forbes, which means I spend most of my time covering the automotive industry. But I also keep an eye on the rest of America's heartland—where stuff is manufactured and grown. I've been on the auto beat for more than 20 years at Forbes, Busin...